534 F. App'x 165
3d Cir.2013Background
- Wachovia extended a $20 million revolving line of credit to WL Homes in October 2007, secured by a pledge of WL Homes’ deposit accounts, including the JLH Insurance Corp. account.
- The JLH account was titled in JLH Insurance Corporation, WL Homes’ wholly owned captive insurer subsidiary.
- WL Homes formed JLH in 2005; JLH’s assets were economically treated as WL Homes’ assets in financial reporting, and several JLH officers also served on WL Homes’ board.
- WL Homes and Wachovia executed two follow-up letter agreements in 2008 reaffirming the loan terms and the pledge of the JLH account.
- In 2009 WL Homes filed for Chapter 11, subsequently converted to Chapter 7; Wachovia sought a declaratory judgment that it had an enforceable security interest in the JLH account.
- The Bankruptcy Court granted summary judgment to Wachovia, the District Court affirmed on consent grounds but rejected the use-and-control theory; the trustee and Wachovia cross-appealed, respectively challenging and defending those rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether WL Homes had sufficient rights to pledge the JLH account as collateral. | Trustee: WL Homes lacked full ownership rights in JLH; cannot pledge. | Wachovia: WL Homes’ rights were sufficient to pledge under California UCC principles, given agency/dual-ownership facts. | Yes; WL Homes had sufficient rights via imputed consent/agency to pledge. |
| Whether JLH’s consent to the pledge can be imputed to JLH. | Trustee: no direct consent from JLH was proven. | Wachovia: imputed knowledge/consent through WL Homes’ officers and dual-role officers suffices. | Yes; Stelmar’s knowledge and consent, imputed to JLH, supported enforceability. |
| Whether the district court correctly refused the use-and-control theory. | Trustee: use and control should be independent ground. | Wachovia: consent suffices; use-and-control not necessary given imputed consent. | Reversed in favor of Wachovia on consent-ground; use-and-control not required. |
Key Cases Cited
- In re Ferandos, 402 F.3d 147 (3d Cir. 2005) (debtor can pledge rights it has in collateral)
- In re Teleglobe Comm’cns Corp., 493 F.3d 345 (3d Cir. 2007) (agency/dual-ownership can impute knowledge to principal)
- Atchison, 832 F.2d 1239 (11th Cir. 1987) (signatures of officers can infer consent to use property as collateral)
- Matter of Pubs, Inc. of Champaign, 618 F.2d 432 (7th Cir. 1980) (notice to corporate officer imputed to corporation)
- O’Riordan v. Fed. Kemper Life Assurance Co., 114 P.3d 753 (Cal. 2005) (imputation of agent’s knowledge to principal when material to duties)
- Huston v. Procter & Gamble Paper Prods. Corp., 568 F.3d 100 (3d Cir. 2009) (imputation limits: scope and materiality of agent’s knowledge)
- In re SubMicron Sys. Corp., 432 F.3d 448 (3d Cir. 2006) (California-style rights/imputation in secured transactions)
- Northern Natural Gas Co. v. Superior Court, 134 Cal. Rptr. 850 (Cal. Ct. App. 1976) (dual-agency doctrine in imputed knowledge)